I m sure many of you have had your fill of flood insurance but... just a few interesting tidbits of information.

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Magdalen Oliver
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1 TECH TALK Water Back-Up and Sump Discharge or Overflow Endorsement Who Needs It? By Irene Morrill, CPCU, CIC, ARM, CRM, LIA, CPIW Vice President of Technical Affairs Delivery of Publications In support of greening our planet, effective January 1, 2008, MAIA will deliver all publications to the membership via . We will no longer offer the option to receive publications though the U.S. mail. MAIA will require a current address on file for every member. Using an electronic delivery system will allow us to offer a more timely, efficient and cost-effective mode of communication with our members. Thank you for your support and understanding! I m sure many of you have had your fill of flood insurance but... just a few interesting tidbits of information. An interesting question does everybody does nobody do only a few of your clients need it? The ISO Dwelling Fire program and the ISO Homeowners program have an endorsement offering as well as the ISO Businessowners Policy program. The ISO CP program does not offer it but the coverage may be afforded by a DIC policy. First why would we need it? Policy exclusions are a likely candidate for why and sure enough both the personal and commercial lines policies include an exclusion under the concurrent causation exclusionary section. This exclusionary section tells us that whether it is the sole cause of loss or partial cause of loss or the first thing that caused the loss or the last there just won t be coverage period! The following is from the ISO HO-2000 (the other property policies are similar): We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area. 3. Water Damage Water Damage means: a. Flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind; b. Water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump or related equipment; or c. Water or water-borne material below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure; caused by or resulting from human or animal forces or any act of nature. Direct loss by fire, explosion or theft resulting from water damage is covered. The water damage exclusion in a property policy is a LONG one. Certainly flood is excluded and needs to be purchased through the Flood Policy. (Though ISO has created a CP Flood endorsement, there is no counterpart in other property insurance lines.) February 2007 Massachusetts Association of Insurance Agents 137 Pennsylvania Avenue, Framingham, MA TECH HOTLINE (Fax)

2 Tech Talk - Page 2 February 2007 Sub-surface water can seep in over time and cause damage or water tables can exert pressure on foundations and other structures in or on the ground causing damage. Often exclusions are included when a loss is potentially catastrophic such as flood or when the situation presents no risk of loss as it is a given that over time damage will occur as with sub-surface water. There is no endorsement to cover this type of situation and the flood policy won t respond, either. Water or water-borne material which backs up through sewers is an exclusion that was added to property policies sometime in the 50 s. After WWII there was such extensive construction and expansion that town and city sewer systems couldn t handle it. This was detrimental for all risk policies that must cover all loss that is not excluded. After numerous claim payments the exclusion was added. It started as just the water back up exclusion but has been expanded to also exclude the stuff that is in the water! Water or water-borne material which overflows or is discharged from a sump or sump pump In areas with a high water table a home is quite often made with a sump hole in the foundation. If the hole is not sufficient then a sump pump is installed. The pump keeps the water from overflowing the hole into the building. If the electricity goes off, or the pump malfunctions, or the water is too profuse for the pump to allay then water, water everywhere! ISO now allows a small buyback the Water Back UP and Sump Discharge or Overflow endorsement. So certainly every insured that has a sump or sump pump should be offered this endorsement That s kind of a no brainer. Under the ISO DP and HO endorsements only $5,000 of coverage is available. Under the ISO BOP endorsement coverage BEGINS at $5,000 but more coverage is available. Just ONE little reminder to those BOP insureds who buy the coverage BECAUSE they have a sump pump The following exclusion is contained WITHIN the coverage endorsement. B. The coverage described in Paragraph A. of this endorsement does not apply to loss or damage resulting from an insured's failure to: 1. Keep a sump pump or its related equipment in proper working condition; or 2. Perform the routine maintenance or repair necessary to keep a sewer or drain free from obstructions. So, you can t just buy the coverage and forget about your duty to maintain the property and safeguard it from loss. Interestingly though this exclusion is NOT part of the HO or DP endorsement. However, I m sure the carrier might invoke the neglect exclusion which is also a Section I concurrent causation exclusion along with the water damage language. 5. Neglect Neglect means neglect of an "insured" to use all reasonable means to save and preserve property at and after the time of a loss. If you don t have a sump or sump pump... do you NEED the endorsement? Certainly if you have public sewer! Can there be a malfunction or an overload in the public sewer system sure! Construction in certain areas is still going strong and the demands on the public system could cause problems as it did in the 50 s causing direct flow back into your insured s home. What if your client is NOT part of a public sewer system but has their own personal septic system? Is a sewer and a septic system the same thing? I guess it depends on which dictionary you use!

3 Tech Talk - Page 3 February 2007 Sewer can mean An artificial conduit, usually underground, for carrying off waste water and refuse, as in a town or city. An artificial, usually underground conduit for carrying off sewage or rainwater Septic tank (system) can mean A sewage-disposal tank in which a continuous flow of waste material is decomposed by anaerobic bacteria. It appears that these two things have the same function And besides the exclusionary language also discusses the back up of drains which might or might not be considered sewers or septic systems What about the accidental discharge peril? Won t that cover me if I have a septic system and the drainage is all on my property? The ISO HO-2000 discusses that the following WILL be covered under the HO-3 and 5 for Coverage A and B: Exception To c.(6) Unless the loss is otherwise excluded, we cover loss to property covered under Coverage A or B resulting from an accidental discharge or overflow of water or steam from within a: (i) Storm drain, or water, steam or sewer pipe, off the "residence premises;" or (ii) Plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance on the "residence premises." This includes the cost to tear out and replace any part of a building, or other structure, on the "residence premises," but only when necessary to repair the system or appliance. However, such tear out and replacement coverage only applies to other structures if the water or steam causes actual damage to a building on the "residence premises." We do not cover loss to the system or appliance from which this water or steam escaped. For purposes of this provision, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, down spout or similar fixtures or equipment. Under Coverage C named perils for the ISO HO-2000 policy it states: 12. Accidental Discharge Or Overflow Of Water Or Steam a. This peril means accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance... c. In this peril, a plumbing system or household appliance does not include a sump, sump pump or related equipment or a roof drain, gutter, downspout or similar fixtures or equipment. d. Section I Exclusion A.3. Water Damage, Paragraphs a. and c. that apply to surface water and water below the surface of the ground do not apply to loss by water covered under this peril. SO Is a septic system part of a plumbing system? According to most dictionaries yes the system of pipes and other apparatus for conveying water, liquid wastes, etc., as in a building. the pipes, fixtures, and other apparatus of a water, gas, or sewage system in a building.

4 Tech Talk - Page 4 February 2007 So the DISCHARGE of an ON PREMISES plumbing system IS covered under a broad form named peril policy as well as an open peril or special policy. Then WHY THE NEED FOR THE BACK UP ENDORSEMENT??? That s a good question that has wound up in court MORE TIMES than it SHOULD! The most referred to case for and against coverage is Hallsted v. Blue Mountain Convalescent Center, Inc. 595 p.2d 574 (Wash. App 1979). In this case the sewer pipe OFF the residence premises clogged and resulted in a back up claim to the insured s business. The court was determining if the accidental discharge peril should apply and decided that it should not. In the court s decision it was stated If the cause of the discharge is in the insured s system, e.g. a clogged sink drain which causes water in the plumbing system to overflow, the sewer back up exclusion does NOT apply. IF the cause of the discharge is outside that system, e.g., a clogged sewer pipe which forces water from outside the insured s system to overflow, then the exclusion IS applicable even though the water flowed through the insured s plumbing system. So theoretically, if you have a septic system it is ALL your property and any overflow SHOULD be due to a clogging of YOUR PLUMBING system and accidental discharge should be covered. However, some companies try to FOCUS on the Section I general exclusion of water which backs up through a drain and exclude the loss instead of focusing on the accidental discharge from a plumbing system peril which would allow coverage FOR the loss. Yes, I know ambiguity is found on behalf of the client but where is it found IN COURT. So sometimes just to make it EASIER on YOU never mind your client if the Water Back Up and Sump Overflow endorsement is ON the policy there should be at least $5,000 of coverage WITHOUT A FIGHT You then have conserved your energy to fight the accidental discharge peril coverage on the larger losses. What about Additional Living Expense and the Sewer or Sump back up loss? Does the $5000 limit apply to ALL the loss including the additional living expense if the back up is bad enough to cause some insureds who have asthma or other health reasons to have to live away while the repairs and clean up are made? NO the $5,000 limit does NOT apply to the Additional Living expense coverage under Coverage D. What the endorsement DOES say is that this is NOT an additional limit of insurance over and above the Section I limits. But it does NOT say that the $5,000 is the most we pay for the ENTIRE loss. It states that the $5,000 applies to DIRECT PHYSICAL loss which means the indirect loss is outside the limit. A. Coverage We insure, up to $5,000, for direct physical loss, not caused by the negligence of an "insured", to property covered under Section I caused by water, or water-borne material, which: 1. Backs up through sewers or drains; or 2. Overflows or is discharged from a: a. Sump, sump pump; or b. Related equipment; even if such overflow or discharge results from mechanical breakdown. This coverage does not apply to direct physical loss of the sump pump, or related equipment, which is caused by mechanical breakdown. This coverage does not increase the limits of liability for Coverages A, B, C or D stated in the Declarations.

5 Tech Talk - Page 5 January 2007 The endorsement states that $5,000 is the most paid for DIRECT PHYSICAL LOSS. Then it ends with the statement that this $5,000 does NOT increase the limits of liability for A, B,C OR D!!! What this says is 1) This is NOT an additional limit of insurance but a sub-limit for direct physical loss 2) That Coverage D applies at its own limit IF ISO had wanted to bring the additional living expense within the $5,000 limit they could have since it was done under the Mold endorsement The additional coverage issue of mold states that the limit applies to the total of ALL LOSS PAYABLE under Section I which is different than direct physical loss as stated under the Back up Endorsement. 13. "Fungi", Wet Or Dry Rot, Or Bacteria a. The amount shown in the Schedule above is the most we will pay for: (1) The total of all loss payable under Section I Property Coverages caused by "fungi", wet or dry rot, or bacteria; So bottom line Certainly offer the coverage to those with public sewer and sump pumps. But, even those with septic systems it might be better to have it depending on the stance that the insurance carrier takes with the Section I exclusion of water back up through sewers and drains v. the Accidental Discharge Peril. * * * * * Good luck! If I can be of service to you, please call me, Irene Morrill, Vice President of Technical Affairs, at or me at imorrill@massagent.com. You can fax me at This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permission of the author is not permitted.

WATER EXCLUSION ENDORSEMENT

WATER EXCLUSION ENDORSEMENT This endorsement changes the policy Page 1 of 5 -- PLEASE READ THIS CAREFULLY -- THIS ENDORSEMENT HAS NOT BEEN FILED AAIS has not filed this sample endorsement. A company using this endorsement must download